MUFG Union Bank, N.A. A member of MUFG, a global financial group

Are Your Virtual Card Payments Really Check Payments in Disguise?

Agenda

1.ePayables in the Payment Landscape 2.Overview of Supplier-Initiated Payments (SIP) 3.Overview of Buyer-Initiated Payments (BIP)

4.Best Practice Functionality of a BIP Program

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ePayables in the Payment Landscape

3

ePAYABLES CARD: Industry Trends

ePayables Programs Have Large Transaction Sizes

2012 2015

ePayables Users Report 58% of Total Purchasing Card Spend is now on ePayables vs. Plastic Card Programs

Source: RPMG 2015 Electronic Account Payable Survey

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ePAYABLES CARD: Industry Trends - continued

• ePayables spend grew by 33% between 2014 and 2015 • Respondents with multiple ePayables options account for higher % of

total ePayables spending • Organizations with multiple ePayables options account for 34% of the

response pool but 47% of ePayables spending

Source: RPMG 2015 Electronic Account Payable Survey

2013 2014 2015 2016

2017 2019 2018 Projected Projected Projected Projected

$49B

$65B

$110B $101B

$90B $82B

$73B

North American ePayables Growth in Billions

5

Chart1

49

65

73

82

90

101

110

Sheet1

2013$49

2014$65

2015$73

2016$82

2017$90

2018$101

2019$110

Sheet1

Sheet2

Sheet3

Process Cost Savings is the Largest Benefit from Card

* RPMG Purchasing Card Benchmark Report 2014

• The RPMG study uses a baseline Purchase Order (PO) cost of $91. This can be reduced down to $21 per transaction with a P Card

• P Card ATV = $346 this would equating to 14,450 transactions for a $5 million PCard program

• 14,450 x $70 per transaction savings = $1,011,500

• $1 million cost savings compares to $75,000 rebate at 1.5%

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Where Does the Cost Savings Come From?

Low Dollar Purchases Needs a Low Cost Purchase Process

• Traditional card programs focus on replacement of purchase orders

• Purchase order process was originally designed for high risk, high dollar purchases

• Removal of unnecessary steps in purchase requisition process reduces costs within the company

$ 91 Cost

Purchasing Card Were Designed to Eliminate Costs

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Expanding the Card Program Introduces ePayables

Cost Elimination Focused on Low $ spend Yes

Eliminated PO Process Steps Yes

Enrolled suppliers to accept card Yes

Expanded categories of spend (i.e. office supplies, meetings, etc.)

Yes

REPEAT?

NO

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Expanding the Card Program Introduces ePayables

Spend $

Tail Spend Head Spend

Suppliers ranked high to low spend

• Shift focus from the end of the Tail Spend moving inward

• Purchase size begins to increase

• Some control may be needed to manage expenditures

• Volume of transactions is high but risk remains low

• Introduction of ePayable capabilities expands existing card program – increasing spend and rebate

Phase 1: Distributed Plastics

Phase 2: ePayable Solution

• Raw Materials • Packaging • Logistics Services • Consulting

• Travel Services • MRO • Spare Parts • Office Supplies

Tail Spend Head Spend

Volume

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Maintaining Controls Enables Higher Dollar Spend

Higher Dollar Purchases Needs Some Control

• ePayable program leaves the existing purchase process in place

• Card payment file is created once invoices have been approved for payment

• Enables expansion of card payments to higher $ transactions

$ 91Cost

Virtual Cards Were Designed to Control Purchases

Start Process Here

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Sophistication Improves With Time Ad

vanc

ed T

echn

olog

y

Vendor Ghost Cards Removed the Plastic

Supplier-Initiated Payments Sends Emails

to Suppliers (SIP)

“Pull Payment”

Suppliers’ Bank Accounts

Buyer-Initiated Payments Sends $$$ to Merchant

Account (BIP)

“Push Payment”

Starting Point is a Purchasing Card

Starting Point is an Approved Payment

File

Vendor Keeps Card Number on File

Employee Cards for Small Dollar Purchases

Distributed Plastics

ePayable / Virtual Cards

Traditional Credit Cards 11

Overview of Supplier-Initiated Payments (SIP)

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Supplier-Initiated Payment Process

1. Supplier sends invoice to Buyer who enters into their ERP System 2. Buyer submits payment file to SIP System requesting Virtual Card Number

(VCN) 3. Supplier receives secure email with VCN number 4. Supplier read email with card payment instruction 5. Supplier processes card transaction using supplier’s terminal 6. Pre-authorization leveraging VCN control 7. Final authorization leveraging posting account controls 8. Settlement made to supplier’s acquirer to the deposit account

A/P File

Approval

ERP System

Buyer

A/P File

Invoice Supplier

2

1

3

4

5

6

7 8

Settlement Authorization

VCN Authorization

Supplier receives VCN

Supplier processes transaction

SIP Payment System

Supplier's Acquiring

Processor/Bank

Buyer Supplier

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Why Are Supplier-Initiated Payments Like a Check?

Buyer Not In Control of Payment Supplier Initiated Payment

Email Float Payments completed must be reconciled against emails sent

Supplier Processing Supplier resource needed for card terminal entry

Card Expiration Card no longer valid after 7 – 14 days; Buyer contacted to reissue

Card Declination Authorization declined at either virtual card or posting card level; Buyer contacted to resolve

Invoice Reconciliation Supplier applies a credit/debit to card authorization amount; offset must be reconciled against invoices intended to be paid

A/P File

Approval

ERP System

Buyer

A/P File

Invoice Supplier

2

1

3

4

5

6

7 8

Settlement Authorization

VCN Authorization

Supplier receives VCN

Supplier processes transaction

SIP Payment System

Supplier's Acquiring

Processor/Bank

Buyer Supplier

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Overview of Buyer-Initiated Payments (BIP)

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Buyer-Initiated Payment Process

1. Supplier sends invoice to Buyer who enters into their ERP System 2. Buyer submits payment file to BIP System 3. BIP System uses Network to make payment direct to Supplier 4. Payment automatically deposited into Supplier’s bank account 5. Supplier has 24x7 access to Payment Portal

A/P File

Approval

ERP System

Buyer

A/P File

Invoice Supplier

2

1

5

3

Settlement Authorization

Supplier’s Acquiring

Processor / Bank

BIP Payment System

4b 4a

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Why Are Buyer-Initiated Payments Like a ACH?

Buyer Controls Payment Buyer Initiated Payment

Elimination of Payment Float Card payments authorized within seconds of release

Supplier Portal Supplier reviews payment detail via portal including invoices paid and credits taken

Payment Confirmation Payment confirmation file available to close AP

Exact Payment Buyer determines amount of payment

Invoice Reconciliation Supplier applies a credit/debit to card authorization amount; offset must be reconciled against invoices intended to be paid

A/P File

Approval

ERP System

Buyer

A/P File

Invoice Supplier

2

1

5

3

Settlement Authorization

Supplier’s Acquiring

Processor / Bank

BIP Payment

System

4b 4a

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Best Practice Functionality of a BIP Program

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BIP Saves Supplier Process Steps

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• BIP fully automates card payment processing

• “Card Payment That Acts Like an ACH Credit”

• SIP relies on the supplier to process card payments

• “Card Payment That

Acts Like a Check”

A/P File

Approval

ERP System

Buyer

A/P File

Invoice Supplier

2

1

5

3

Settlement Authorization

Supplier’s Acquiring

Processor / Bank

BIP Payment

System

4b 4a

A/P File

Approval

ERP System

Buyer

A/P File

Invoice Supplier

2

1

3

4

5

6

7 8

Settlement Authorization

VCN Authorization

Supplier receives

VCN

Supplier processes transaction

SIP Payment System

Supplier's Acquiring

Processor/Bank

Buyer Supplier

Why Are There Still So Many Checks?

Checks SIP Wire, ACH, BIP

Set Up

Ongoing Cost

Reconciliation

EASY Mail check to invoice

address

EXPENSIVE Mailing AND Added Products Needed to Manage Checks

HARD Check float

MODERATE Suppliers already

accept cards

EXPENSIVE Reminder emails and calls to/from suppliers

HARD Card / email float

Suppler retention issue

HARD Supplier agreement

and capture of account info

INEXPENSIVE Fully automated

EASY Payments confirmed Suppliers maintained

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BIP - A Winning Combination for Buyer and Supplier

Reasons Buyers Pay by Card Reasons Suppliers Don’t Want to Accept Cards 1. Rebates turn a cost center into a

profit center - tangible 2. Costs savings from check

elimination 3. Extended billing terms from

card issuer

1. Merchant Discount Fee 2. Price discounts and terms

previously offered to supplier 3. Lack of awareness of BIP

payment efficiency and reduced cost

•BIP increases rebate by moving more payments from check to card

•BIP reduces merchant discount fee by enabling the Buyer to control interchange, which is approximately 80% of the discount rate

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Suppliers are the Key to Success of ePayables

Critical Small Suppliers Strategic Suppliers

• Often already accepts credit card payments

• Timing of payment is important • Recognizes the importance of

“preferred vendor” status • Willing to process payments

through card terminal • Focus on card enrollment for

Supplier Initiated Payments 1. card issuer

• Power of equals • Aggressively negotiated pricing • Agreed payment terms and

discounts • High invoice frequency and

purchase amount • Significant financial impact of

card acceptance • Focus on card enablement for

Buyer Initiated Payments

Invoice Amount

3% Discount Rate 2% Discount Rate or less

Savings

$500 $15 $10 $5

$5,000 $150 $100 $50

$50,000 $1,500 $1000 $500

$150,000 $4,500 $3,000 $1,500

Small Suppliers Strategic Suppliers

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BIP - A Winning Combination for Buyer and Supplier

Functionality to Look for in a BIP Program

1. Success with transactions ranging from $100K to $1 million 2. Ability to leverage a payable file to initiate card payments 3. Buyer ability to control the interchange rate and reduce the supplier

discount rate 4. Supplier enrollment focusing on an ePayable specific pricing 5. Real-time authorization/payment confirmation 6. System intelligence to stop card declines 7. Option to add a secondary approval hierarchy outside ERP 8. Supplier portal to enable invoice reconciliation 9. card issuer

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Questions Diane M. Kush, Sr. Product Manager MUFG Union Bank, N.A. Diane.Kush@UnionBank.com (925) 947-2436

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Disclosure

These materials have been prepared by MUFG Union Bank, N.A., (“MUB”) and are intended to provide general observations on the topics addressed for clients or prospective clients to whom such materials are directly addressed and delivered. They may not be used or relied upon for any purpose. The materials presented are for discussion purposes only and should be considered only in combination with other information and disclosures, oral or written, provided or to be provided by your qualified security professionals. These materials may not reflect information known to other professionals in other business areas of MUB and its affiliates. Additionally, these materials have not been prepared with a view towards public disclosure under applicable laws or otherwise, and are intended for the consideration of clients or prospective clients, and may not be reproduced, disseminated, quoted or referred to, in whole or in part, without MUB’s prior written consent. MUB assumes no obligation to update or otherwise revise these materials. The materials presented are not intended to provide legal or information security advice, and MUB is not advising you on these matters. If you believe that you need assistance in evaluating and understanding the risks of a particular matter or procedure, you should consult appropriate independent legal or information security advisers (other than MUB) before entering into, or deciding to modify, terminate, extend or replace the transaction or the procedure. Neither this, nor any other communication received from MUB, whether written or oral, is, or should be construed as, a recommendation or solicitation with respect to the execution of any particular transaction or procedure with MUB or any other potential counterparty. No representation or warranty, express or implied, is made as to the accuracy or completeness of such information and nothing contained herein is, or shall be relied upon as, a representation, whether as to the past, the present or the future. No statements made in this seminar or in the PowerPoint or other materials should be construed as legal or other advice or as pertaining to specific factual situations. ©2017 Mitsubishi UFJ Financial Group, Inc. All rights reserved. The MUFG logo and name is a service mark of Mitsubishi UFJ Financial Group, Inc., and is used by MUFG Union Bank, N.A., with permission. Member FDIC..

Are Your Virtual Card Payments Really �Check Payments in Disguise?AgendaePayables in the Payment LandscapeePAYABLES CARD: Industry Trends ePAYABLES CARD: Industry Trends - continuedProcess Cost Savings is the Largest Benefit from Card Where Does the Cost Savings Come From?Expanding the Card Program Introduces ePayablesExpanding the Card Program Introduces ePayablesMaintaining Controls Enables Higher Dollar Spend Sophistication Improves With TimeOverview of Supplier-Initiated Payments (SIP)Supplier-Initiated Payment ProcessWhy Are Supplier-Initiated Payments Like a Check?Overview of Buyer-Initiated Payments (BIP)Buyer-Initiated Payment ProcessWhy Are Buyer-Initiated Payments Like a ACH?Best Practice Functionality of a BIP ProgramBIP Saves Supplier Process StepsWhy Are There Still So Many Checks?BIP - A Winning Combination for Buyer and SupplierSuppliers are the Key to Success of ePayablesBIP - A Winning Combination for Buyer and SupplierQuestionsDisclosure